Real Estate

Zillow expects the housing market's good times to keep rolling in 2020

Home sizes will shrink, the economy will steadily grow, and rent growth will be positive

The single-family housing market has been busy and bustling in 2019, thanks to lower than expected interest rates throughout much of the year. Zillow expects more of the same in 2020.

The online real estate giant recently published its predictions for housing in 2020, and the site’s economists expect 2020 to look a lot like 2019, starting with the health of the economy.

Although many experts have said throughout the year that a mild recession is possible next year, the economy has more recently showed signs of progress.

That led Zillow to now state that there most likely will not be a recession in 2020. Healthy consumer confidence and job creation are leading to growth in the economy, avoiding the dreaded R-word.

“Current conditions point to a recipe for continued economic growth, not a recession,” the report states. “Growth itself may be slower than the strong pace we’ve seen at times throughout the recovery, but growth will still occur for at least the next year.”

Another positive for next year’s economy and housing market will the continuation of this year’s low mortgage rates, Zillow said.

“Mortgage rates fell markedly in 2019 and are expected to remain low for the bulk of 2020,” Zillow said in its forecast.

“That will keep demand strong and continue to fuel decent price growth in the nation’s most broadly affordable markets,” Zillow continued. “But low rates don’t help overcome the upfront hurdle of high down payment requirements, pushing buyers in expensive areas to fan out in search of areas they can better afford.”

Although it should be noted that Fannie Mae, Freddie Mac, and the Federal Housing Administration all accept down payments in the single digits, not the 20% that many borrowers expect they have to have.

Added to a steady economy, home value and rent growth will also remain steady, but slow in 2020, Zillow said.

But it isn’t sunshine and roses in every arena of the housing market. Millennials and Generation Z have entered the market, but Baby Boomers aren’t leaving anytime soon, leading to a shortage of inventory.

Since Baby Boomers want to age in place, and are backing up the market, the New Year will bring smaller single-family homes, versus the larger and older homes Boomers are living in now, Zillow said.

Zillow predicts that homes in urban areas that have amenities will become more popular than the larger homes Boomers live in.

Beyond that, Zillow actually predicts that the size of homes will shrink.

In fact, the size of new single-family homes is falling for the fourth time in five years, according to Zillow. The typical home in the U.S. has shrunk by more than 80 square feet since 2015.

Since younger buyers have less money, they can’t afford to purchase the larger, older homes that are on the market, despite low mortgage rates and the demand for houses.

From December 2019 through December 2020, home values are expected to grow 2.8%. This is down from Octobers’ annual growth of 4.7%, but Zillow says its experts still expect rent growth to continue rising in the spring.

“With the housing market stabilizing from the drama of the price recovery and the slowdown during 2019’s home shopping season, we have a rare moment of calm to reflect on what housing might look like in the year to come,” said Zillow Director of Economic Research Skylar Olsen. “If current trends hold, then slower means healthier and smaller means more affordable.”

Rent appreciation is currently at 2.3%, Zillow says. The desire to rent will continue to rise in the beginning of 2020, but settle down to lower than 2% at the end of the year.

“Yes, we expect a slower market than we’ve become accustomed to the last few years, but don’t mistake this for a buyer-friendly environment – consumers will continue to absorb available inventory and the market will remain competitive in much of the country,” Olsen said. “But while the national story is a confident one, housing in some manufacturing-heavy markets may see adversity. The struggle could be even more stark, since similarly affordable housing markets with a more balanced job profile may be 2020’s rising stars.”

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